Commentary: The ‘insider’ tag’s tarnish can be harmless or fatal

Cohen, aptly described by the Wall Street Journal as one of the best-known and most successful practitioners of his trade, a billionaire art collector and a cherished client of Wall Street firms that earn millions of dollars annually from SAC Capital’s trades.

Reuters

Hedge-fund manager Steven A. Cohen.

Now that résumé is in jeopardy.

Cohen has been implicated in a scandal in which Matthew Martoma, a manager at an SAC Capital affiliate was charged with insider trading. It’s not a one-off deal, either, but an 18-month pattern that netted $276 million, according to prosecutors.

For Cohen, being sullied by an insider scandal could be a mere speed bump, not unlike David Einhorn’s being tarnished when his Greenlight Capital Inc. was fined by U.K. regulators in January for insider trades. See story on Einhorn’s insider trading case.

Einhorn shed some of his gilded reputation, but, if the media attention paid to him is any indication, not an iota of influence.

The alternative to a gentle, Einhorn-style resolution would be the debacle that befell Galleon Funds. Raj Rajaratnam’s elite hedge fund closed within a matter of weeks after Rajaratnam was charged with insider trading — charges for which he was eventually convicted and sentenced to 11 years in prison. See full story on Rajaratnam’s sentence.

Because Cohen has been more successful in the industry for longer, he has more at stake. It also means he is an attractive target. Federal investigators have examined SAC and Cohen for years, with nothing to show for it.

Tuesday’s dramatic development could be a first sign that investigators’ luck and Cohen’s reputation are changing.

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